21 June 2006

Communications Act of 1934

The Communications Act was passed in 1934 to replace the Radio Act of 1927. As a result of it, the Federal Communications Commission replaced the FRC. As suggested by the new name, the FCC differed from the FRC in that the new entity regulated both radio and wire communications. This Act was naturally going to reflect the general tone of New Deal legislation; however, its progressive measures were fairly subtle. One was section 315 ("The Fairness Doctrine"), which was usually interpreted as compelling broadcasters to offer "equal time" to political candidates when differing points of view were broadcast. The Fairness Doctrine was an early casualty of the Reagan Administration, officially on the grounds that it actually promoted mediocrity and conformity. Another was a prohibition of commissioners from being executives of telecommunications firms.

The 1934 Act was mainly a product of prolonged use and ammendment. It was, for example, modified in 1959 to exempt news broadcasters from the "Equal Time" doctrine. In 1943 it acted to reduce network consolidation, creating ABC from part of NBC. In 1970, Congress passed the Prime Time Access Rule (PTAR), which required networks to grant half an hour each night to local broadcasters. Local broacasters merely used this widfall to broadcast reruns and game shows.

In regulating the telephone industry the FCC was far weaker. According the thesis of regulatory capture,* one would expect it to gradually fall under the control of the radio and television lobby because of the relatively large number of firms in that industry c. 1934; in contrast, telephones were already a monopoly in 1934, and the FCC played a very weak role. It issued an 8,000 page study of the industry establishing that tariffs were too high, but failed even slight efforts to break up the vertical integration of the enterprise until the 1980's. As everyone knows, a mere quarter century later the monopoly is now a duopoly of SBC and Comcast (with Sprint a runner up in wireless). This would reflect the concept that the FCC's capture by the telephone industry was not an obstacle because the telephone industry had a single interest: to avoid regulation.

Several factors stimulated the end of the "1934 regime" in telecommunications: the near-extirpation of the old structure of the industry, with clear divisions between mass communications and telephony now gone. Another was the de facto merger of information technology (IT) with telecom (TC), creating a new and now-prestigious TCIT sector. Another, evidently, was that the process of regulatory capture had so totally run its course that Congress was now infected.* Regulatory capture: firms tend to win control over the government bodies intended to regulate them. Hence, the FCC will gradually become a handmaid of the media monopolies. Possibly proposed by Adam Smith, and later, by historian Gabriel Kolko. A really good summary of the matter is found at Writer of Fortune:

"Regulatory capture" is the name Kolko and others applied to a particular phenomenon: when regulators serve the interests of those they're allegedly regulating in the general public interest. It was known before Kolko's work, but regarded as a dysfunctional aberration that sound policy reliably enforced could take care of. Kolko put the heyday of Progressive regulation under close scrutiny and argued that in fact regulatory capture wasn't just common, it was the norm. He found no important exception to it emerging, and usually emerging very early on in the history of a regulatory agency. As the phrase "triumph of conservatism" suggests, Kolko argued that whatever liberal reformers may have intended and whatever the public may have believed, business interests took control of the actual regulatory process early on and made it work for them.

The basic mechanics of regulatory capture are straightforward. You give more attention to a particular law or agency if you feel that you have something at stake - you're more likely to know about the laws and policies that affect your work, your hobbies, and issues of particular concern to you. And if you're someone important in a business that's about to come under regulation, you have a lot at stake.

Regulators may start off hostile to their subjects, and in some cases this is very much deserved. Libertarians may grouse about, for instance, government imposition of standards for food safety, but even setting Progressive rhetoric aside, the Pure Food and Drug Act came into being in response to real concerns that business was not addressing. Whether it might have addressed them in time is another matter, and one has to be fairly detached to say that people should have waited patiently in the face of diseased meat, food contaminated by offal, bugs, and anything else that fell into the vats, and so on. And freshly regulated businesses often start off hostile to their regulators - also often with good reason, since a lot of regulators start off with a "damn them all, and hang them high" attitude.